Employee Innovation: Does Your Company Own Your Inventions?

On the whole, what you do beyond “working hours” is (literally) none of your boss’ business. You can fist pump at Coachella, go hiking in the Adirondacks, or veg out on your couch all weekend long… it’s all good.

But does the same employer indifference apply to your slightly more ambitious endeavors outside of work? Say, a side project writing some code for a new startup, a contract here and there to take photos for friends’ weddings, or graphic design work for a non-profit you support?

As viewers of the latest “Silicon Valley” season will know, it is indeed possible that your employer may have a legitimate legal right to the intellectual property (also known as “IP,” which includes copyright, patents, trademarks and trade secrets) of your innovations outside the office.

We take a look at the contracts and laws that determine whether your side project’s IP belongs to you or your boss.

WITHOUT A CONTRACT: THE LEGAL BASELINE

When a specific IP ownership clause is nowhere to be found in your employment forms, state and federal laws dealing with copyright and patents govern by default. Though these laws will vary state-to-state, a few general principles apply more or less across the board.

If an employee is not hired with the specific purpose of inventing something, then he automatically has ownership (copyright and patent rights) over any inventions or creations made during his employment — even if they are related to his employer’s business. “Mere employment” is not enough to signal a transfer of invention ownership to an employer.

Though the default is for authors and inventors to own the copyright and patent rights to their creations, there are two notable exceptions in the law. First, if an employee is “hired to invent” something or to solve a particular problem, then his employer may automatically own any patents on inventions related to that effort. Second, under federal copyright law an employer automatically owns the copyright to any “works made for hire.” These are works created by an employee “within the scope of his or her employment.”

Finally, even if a company does not own the invention of an employee, it can still attempt to claim a “shop right” to the work — a non-exclusive, no-cost license to use the invention within the normal scope of their business. These are typically awarded only when an employee (a) conceives of and (b) perfects an invention (c) during his hours of employment, (d) working with the company’s materials and appliances.

CONTRACTS THAT ASSIGN IP OWNERSHIP

Understandably, companies want to own the intellectual property rights to the code, graphic design, or other works that are created for them by employees. Proving that an employee’s invention falls “within the scope of his or her employment” is not easy, and narrowly-defined “shop rights” are not a reliable means of IP protection. For this reason, most employers have their employees sign a Proprietary Information and Inventions Assignment (PIIA). This overrides the “default” patent and copyright laws that would otherwise apply.

A PIIA typically states that the employee agrees to assign (transfer) all the intellectual property rights that may result from work during the term of their employment that relates directly or indirectly to the company’s product or service. Additionally, the contract terms will almost always stipulate that any inventions the employee creates on her own time that are at all related to her day job are the IP of her company — whether she worked on this creation on the company’s premises, using its assets, during work hours, or not.

The contract terms for those hired as freelancers or independent contractors also tend to include a clause about ownership of work that functions much in the same was an a PIIA. For example, Shake’s freelance/work-for-hire agreements all include a provision spelling out who owns any intellectual property created in the course of the freelance work. Agreements marked “Assignment” signal that the contractor agrees to transfer their IP rights over to the client, whereas those marked “License” contain terms preserving the freelancer’s IP ownership over their work.

STATE LAWS OVERRIDING SIDE PROJECT CONTRACT TERMS

It is worth noting that some states have enacted laws that limit the extent to which employers can lay claim over their employee’s side project creations. These laws have the power to render null even the strictest of IP Assignment agreements.

For example, the California Labor Code stipulates that regardless of what an employment contract or PIIA says, an employee owns the copyright and patent rights to his inventions if the invention is made entirely on the employee’s own time, without using any of the company’s equipment or technology, as long as the invention (a) does not relate to the company’s business, or (b) did not result from work performed by the employee “as an employee” of the company. Washington state has a similar law protecting employee projects outside the 9-5 bounds.

RECAP

For employees:

Double-check whether you signed a Proprietary Information and Inventions Assignment, or if any of the terms of your employment contract address IP ownership. These should clearly state who owns the inventions you work on in and out of the office.

If you did not sign anything related to IP ownership, inventions made by an employee on a “work for hire” or “hired to invent” basis will likely be the IP of your company.

For employers:

Instead of relying on a sketchy “shop right” license or legal loophole to secure IP ownership over your employee’s inventions, have everyone sign a Proprietary Information and Inventions Assignment.

Lauren optimizes Shake’s email marketing and engagement efforts. Prior to working with Shake, Lauren analyzed new user engagement for Change.org and worked for startups and social enterprises in Hong Kong. Lauren holds a degree in Philosophy from the University of Pennsylvania, where she wrote her senior thesis on the ethics of the death penalty and watched all sixteen seasons of Law & Order: SVU.